Today’s challenges for financial services firms are many, ranging from an increasingly complex regulatory environment to a growing threat from cybercrime and increasing competition from technology firms. To solve these problems and be competitive, companies need to be innovative and nimble.

Many financial services companies have faced these challenges by embracing digital innovation. Members of their boards and executive committees have made the pilgrimage to Silicon Valley to meet with industry leaders and learn how to become more digitally savvy. Some companies have created “innovation spaces” with brightly coloured soft furniture and large electronic whiteboards. Others have introduced “jam sessions” of thinkers and experts across sectors and marathon coding competitions, and created incubation centres and separate tech hubs. Some are partnering with or acquiring fintech companies.

These strategies on their own, however, are not enough. After all, as the banking sector embraces the digital age, it risks becoming even more maledominated.

Banks, asset managers, and insurers are some of the least diverse companies in the market, which is reflected in their outsized gender pay gaps. Their boards and management teams have long suffered from groupthink, which had some role to play in the recent financial crisis. And as things stand, the combination of a bad reputation and male-dominated culture has negatively impacted the sector’s attraction for young people, both women and men. Meanwhile, the tech sector is possibly even more challenged on the diversity front.

As these two sectors become further entwined, the market will reward organizations that embrace diversity as a key component of good corporate governance, not to mention a driver of innovation and customer satisfaction.

As pointed out in “How Diversity Can Drive Innovation,” an HBR article by Sylvia Ann Hewlett, Melinda Marshall, and Laura Sherbin, diversity is a key that “unlocks innovation and drives market growth.” Hiring people with diverse traits and experience creates “an environment where ‘outside the box’ ideas are heard.” The research shows that companies that embrace diversity “out-innovate and out-perform” others, increasing both existing market share and growth in new markets.

The other business imperative for embracing diversity, of course, is the need to understand and better reflect a diverse customer base. For example, companies that are able to better understand and align their insurance, savings, mortgage, and wealth management products with the needs of their LGBT, ethnic minority, and female customers will have clear competitive advantages.

“Flexible working does not mean part-time employment; it is not only for working mothers and it is not just for the benefit of the employee.”

The business case for diversity is well-established and there is a lot of research to back it up; the real question is how to make it happen. Cultural change is not quick or easy. Here is some advice on how to start:

MAKING CHANGE

Engage leadership. The first step to diversity is ensuring the CEO is on board. Without the CEO’s full and visible commitment to improving diversity and inclusion, nothing will happen. The tone is set from the top and senior management take their lead from the CEO.

Identify and target the problems. The next step is to diagnose the problem and set targets for improvement. The CEO and senior leadership need to have a granular set of data to identify the baseline. Relevant data would include, for example, employee gender mix by title and job code over time; employee time in roles before promotion; gender analysis of the employee pool by grade and job type; hiring statistics by gender; gender mix of promotions; and employee engagement results by gender. Once the key problem areas are known, management must set targets that will be regularly reported and measured like any other business goals. These targets should also be embedded in managers’ balanced scorecards.

Eliminate bias in recruitment. To improve diversity in recruitment, firms need to begin at the beginning and eliminate gender-biased language from job advertisements. (There is freely available software on the Internet to do this.) Blind résumés and diverse interview panels need to be established in the selection process. And if selection is being done through recruiters, the search firms need to be instructed to deliver a diverse slate of candidates.

Train management. Managers must be trained to manage with a diversity mindset. It is not actually possible to be “gender blind” or “race blind,” but unconscious bias training enhances awareness of innate bias and stereotypes. That training is, however, in no way sufficient. As Iris Bohnet points out in What Works: Gender Equality by Design, for de-biasing to have a meaningful impact it must involve the following four steps: awareness of the possibility of bias; understanding of the direction of the bias; immediate feedback when falling prey to this bias; and a training program with regular feedback, analysis, and coaching. In other words, de-biasing is a very deliberate and ongoing effort.

Sponsor diversely. Sponsorship is also very important. Like a mentor, a sponsor gives advice and guidance, makes introductions, and gives feedback. However, unlike a mentor, a sponsor is invested in your potential and advocates for you. A sponsor will encourage you to take risks and protect you when you do; in return, a sponsor expects outperformance and loyalty. However, these relationships occur naturally and white men are the dominant group with the ability to provide sponsorship. Therefore, as noted in Sylvia Ann Hewlett’s Forget a Mentor, Find a Sponsor: The New Way to Fast-Track Your Career, men are 46 per cent more likely to have sponsors than women, and Caucasians are 63 per cent more likely to have sponsors than professionals of colour. Those in a position to sponsor others need to cast their nets widely and deliberately sponsor more diverse protégés.

Be flexible with flex work. Flexible working is talked about a lot and many companies offer their employees the opportunity to work flexibly. However, take-up is low in financial services because there is often a misunderstanding of what flexible working actually means and, therefore, there’s a stigma attached to doing it. Flexible working does not mean part-time employment; it is not only for working mothers and it is not just for the benefit of the employee. I tend to use the expression “agile working” instead. It has a much more positive connotation: everyone wants to be “agile.” Yes, many working mothers would like to work part-time to facilitate childcare; many fathers would like to do so as well. Many people would like to work full-time, but in a way that is more suitable to their personal needs—both women and men, and for reasons other than childcare. In roles where it is easy to measure outcomes and results, allowing people to work in different locations at times that suit them creates a more inclusive and engaged workforce with greater loyalty to the organization.

Model what you seek. Finally, role models are an essential ingredient to creating a more inclusive culture. A company can hire a very diverse workforce, but if employees do not see anyone at the top they can relate to, they will not stick around. You have to see it, to be it. Diversity is nothing without inclusion, and the tone for an inclusive culture is set from the top.

It’s clear that financial services companies need to respond to the challenges of a digital age, and start now. All financial services CEOs are tackling short-term priorities around regulatory reporting requirements, downward pressures on fees, managing costs, and producing results for shareholders. However, if those leaders don’t prioritize diversity and inclusion as a business imperative, their companies will suffer in the long term, missing out on top talent and failing to adapt business models quickly enough to remain competitive. Diversity in business is a financial issue, not a social one.